Social media giant Reddit filed for its long-awaited IPO today. This move will bring it to the public markets as one of many valued technology startups and private companies seeking exits this year (source).
The timing of Reddit’s IPO is not surprising, considering its complex history of being sold, spun back out, and now approaching the public markets with more than $800 million in revenue expected in 2023, up from $666.7 million in 2022.
However, despite its growing revenue, Reddit remains unprofitable on both GAAP and adjusted bases, and continues to need cash to fund its operations. While the company is making progress in reducing losses, its profitability issues may limit its potential valuation when it goes public.
In 2022, Reddit posted a net loss of $158.6 million and an adjusted EBITDA of negative $108.4 million. These numbers improved in 2023, with a net loss of $90.8 million and negative adjusted EBITDA of $69.3 million. The company’s free cash flow also improved from -$100.3 million to -$84.8 million over the same period.
Reddit raised over $1 billion while privately held, including a massive $410 million Series F round in 2021, pushing its valuation to $10 billion. Now, as it prepares for its IPO, Reddit is planning a novel approach by reserving shares for 75,000 of its users (source).
An IPO with a twist
Reddit’s IPO filing coincides with a deal with Google worth around $60 million per year, representing a significant potential tailwind for its 2024 results (source). This could lead to new revenue sources, especially if Reddit secures similar deals with other major AI model providers.
Reddit’s S-1 filing also indicates that the company is exploring the possibility of licensing access to its platform’s data, offering a new revenue avenue as it embarks on its roadshow for potential investors.
The investor pitch
Despite its profitability challenges, Reddit has seen a 27% increase in global daily active unique users, with over 500 million visitors in December 2023 and an average of 73.1 million daily active uniques globally in the same period.
Looking ahead, Reddit sees potential for revenue growth through advertising, especially in the use of machine learning and prediction models to improve the advertising experience for its users and advertisers.
The company estimates its total addressable market globally from advertising alone to be $1.4 trillion, setting a high bar for potential revenue growth.
If Reddit’s IPO is successful, it could also encourage other late-stage, private-market tech companies to consider going public, which would benefit both venture capital reporters and investors alike (source).
